- 15 -
Revenue Act of 1921 (1921 Act), ch. 136, sec. 247(a)(4), 42 Stat.
263, changed favorably to life insurance companies the law under
which life insurance companies were taxed by providing a system
under which life insurance companies were taxed only on their net
investment income. Investment income, for this purpose, did not
include premiums, losses and expenses incurred in underwriting
operations, and gains and losses from the sale of investment
assets. The portion of investment income set aside in reserves
to satisfy a company’s obligations to its policyholders under its
insurance contracts also was excluded from taxation. See id.
Before the 1921 Act, the same statutory provisions applied
to tax both life and P&C insurers. The 1921 Act changed this
uniformity by providing for life insurance companies rules which
were different and generally more favorable than the rules under
which a P&C insurer was taxed. The 1921 Act taxed P&C insurers
on both their investment and premium income and did not allow
them to deduct their reserve funds. P&C insurers, however, could
deduct their “losses incurred”, see 1921 Act sec. 247(a)(4), 42
Stat. 263, a deduction that required a calculation of the P&C
insurer's unpaid losses at the end of the year, see 1921 Act sec.
246(b)(6), 42 Stat. 227. For the purpose of this calculation,
the unpaid losses of a P&C company included its accrued
liabilities. See Retailers Fire Ins. Co. v. Commissioner, 3
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011